Expand Federal Medicaid Support

Harold Pollack is professor of social service administration at the University of Chicago, where he is faculty chairman of the Center for Health Administration Studies.

Updated December 6, 2010, 9:32 AM

Like Medicare and like private insurance, Medicaid can be administered more effectively, more diligently, and more informed by the best available comparative effectiveness research. Many states have become much more aggressive in their quality improvement. Although one should not overstate the current evidence base, well-implemented disease and care management models like Community Care of North Carolina’s asthma and diabetes efforts show promise in improving quality and lowering costs among high-cost beneficiaries. State and federal law enforcement are more effective than they used to be in detecting fraud.

With state budgets in trouble and Americans losing employer-based health insurance, federal support for Medicaid should increase.

Without detracting from the importance of such efforts, I believe it is important to reject two main premises that underlie much public debate about Medicaid, and that are now part of the deficit reduction debate.

First, it is not necessary or wise to arbitrarily curb Medicaid spending growth. Medicare and Medicaid expenditures are often wrongly lumped together as a common budget challenge. In fact, the challenges are quite different within the two programs.

Properly viewed in the national context, projected spending on Medicaid and related programs will be quite manageable for years to come. Current federal spending on Medicaid and the Children’s Health Insurance Program is about 1.8 percent of gross domestic product. The Congressional Budget Office estimates that federal spending on Medicaid, CHIP, and the new health insurance exchanges will reach 2.8 percent of G.D.P. by 2020 and 3.8 percent by 2035. I have not seen solid corresponding forecasts for state Medicaid expenditures. These could plausibly add another two percentage points to that 2035 figure.

These are deeply un-frightening numbers, particularly in light of the projected near-doubling of overall U.S. health care expenditures by 2035, and in light of much scarier projections of Medicare spending growth over the same period, and beyond.

Viewed at the level of the individual patient, Medicaid spending may even be too low. Medicaid reimbursements lag behind other payers, many services like dental care are not covered, and the low reimbursements create huge problems for urban hospitals and other providers.

Medicaid is also the safety valve for other parts of the American health care financing system. When employer-based coverage shrinks, Medicaid expenditures increase. When large private carriers step away from long-term care insurance, Medicaid must fill that breach, too.

Capping or constraining the federal portion of Medicaid is a particularly bad idea. This shifts financial burdens, risks, and deficits onto states that already lack the fiscal capacity to run Medicaid well. Many states do not provide the resources required to treat recipients properly. At the same time, rising Medicaid burdens lead states to cut other spending on education, public health, and social services to vulnerable populations.

Right now, as states deal with declining revenues and in some cases legal requirements to balance budgets, they are trying to cut Medicaid services during a deep recession — precisely when the need for Medicaid is greatest and when the overall economy requires counter-cyclical public spending to get people back to work.

Indeed, now is the time to consider a substantial increase in federal responsibilities and funding for Medicaid to address the programmatic and the macroeconomic shortcomings of a state-federal partnership that no longer works.

Rather than capping federal Medicaid spending or overall Medicaid expenditures, we should focus on running Medicaid more effectively. In the short-run, the federal government should extend some of the Medicaid supports provided to states as part of last year’s stimulus, and should assist states establish strong links between Medicaid and the new health insurance exchanges.

Medicaid doesn’t stand outside of the health care system. If we want to control Medicaid spending, we will need to pursue broader efforts to improve the overall system’s economy and quality. If we fail in that broader task, rising Medicaid costs will be the least of our problems.